Stephen Bainbridge's Journal of Law, Religion, Politics, and Culture

12/03/2009

The Demise of Newspapers: A Market Failure? I Don't Think So.

So the government bailed out banks, the automotive industry, and so on. Now Henry Waxman claims that the government is "going to have to be involved in one way or the other" in saving the newspaper industry from its long and continuing decline:

"The newspapers my generation has taken for granted are facing a structural threat to the business model that has sustained them," said Representative Henry Waxman, a Democrat from California.

The loss of revenue has spurred a vicious cycle with thousands of journalists losing their jobs," he told a meeting on journalism in the Internet age hosted by the Federal Trade Commission (FTC).

He says that like it's a bad thing. ;-)

"We cannot risk the loss of an informed public and all that means because of this market failure," he said.

I'm puzzled. What exactly is the market failure here? Welfare economics classically recognizes four basic sources of market failures: producer monopoly; externalities; the good to be produced is a public good; and informational asymmetry between producer and consumer.

I don't see any of these as the newspaper industry's problem. Instead, I see obsolete technology coupled to an antiquated business model.

It's like saying that the demise of the buggy whip industry was occasioned by a market failure. (Of course, if Waxman had been around back then, he probably would have bailed out the buggy whip makers too.)

What we are observing here is the process of creative destruction that lies at the heart of a market system. It is evidence of a functional market, not of a market failure.

“Congress can’t impose a solution” to that structural problem, he said. But the government should partner with the media industry to ensure a sound future for journalism. Waxman praised the record of “independent” reporting in U.S. history and said it has implications for democracy.

“There needs to be a consensus within the media industry and the larger community it serves” before the government acts, Waxman said. “We have to figure out together how to preserve that kind of reporting.”

But even that's too expansive a role for government. Instead of trying to pick winners and losers, government's sole function ought to be creating a level playing field on which both new and old technologies can compete fairly to see which is best.

Comments

The Demise of Newspapers: A Market Failure? I Don't Think So.

So the government bailed out banks, the automotive industry, and so on. Now Henry Waxman claims that the government is "going to have to be involved in one way or the other" in saving the newspaper industry from its long and continuing decline:

"The newspapers my generation has taken for granted are facing a structural threat to the business model that has sustained them," said Representative Henry Waxman, a Democrat from California.

The loss of revenue has spurred a vicious cycle with thousands of journalists losing their jobs," he told a meeting on journalism in the Internet age hosted by the Federal Trade Commission (FTC).

He says that like it's a bad thing. ;-)

"We cannot risk the loss of an informed public and all that means because of this market failure," he said.

I'm puzzled. What exactly is the market failure here? Welfare economics classically recognizes four basic sources of market failures: producer monopoly; externalities; the good to be produced is a public good; and informational asymmetry between producer and consumer.

I don't see any of these as the newspaper industry's problem. Instead, I see obsolete technology coupled to an antiquated business model.

It's like saying that the demise of the buggy whip industry was occasioned by a market failure. (Of course, if Waxman had been around back then, he probably would have bailed out the buggy whip makers too.)

What we are observing here is the process of creative destruction that lies at the heart of a market system. It is evidence of a functional market, not of a market failure.

“Congress can’t impose a solution” to that structural problem, he said. But the government should partner with the media industry to ensure a sound future for journalism. Waxman praised the record of “independent” reporting in U.S. history and said it has implications for democracy.

“There needs to be a consensus within the media industry and the larger community it serves” before the government acts, Waxman said. “We have to figure out together how to preserve that kind of reporting.”

But even that's too expansive a role for government. Instead of trying to pick winners and losers, government's sole function ought to be creating a level playing field on which both new and old technologies can compete fairly to see which is best.